THE COMMISSIONER OF INCOME TAX V. KERALA STATE CONSTRUCTION CORPORATION LTD.

ITA/237/2012

AI Insights

The case revolves around the eligibility of Kerala State Construction Corporation Ltd. to carry forward a business loss from the assessment year 2002-03 to subsequent years. Initially, the assessee filed a return under Section 139(1) showing a positive income, later revised to show a loss under Section 139(5). The Income Tax Appellate Tribunal allowed the carry forward of the loss, which was contested by the Revenue. The High Court examined whether a revised return under Section 139(5) could be treated as a return under Section 139(3) for the purpose of carrying forward business losses. The court concluded that a return originally filed under Section 139(1) and later revised under Section 139(5) cannot be deemed as a return under Section 139(3), thus not eligible for carrying forward the business loss.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 727960 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 07-02-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Haryana Hotels Ltd., Shri Vallabh Glass Works Ltd. v. Income Tax Officer, Companies Circle VIII and Others, Commissioner of Income Tax v. Nalwa Investment Ltd., Sujani Textiles (P) Ltd. v. Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSEPH MARKOS; V ABRAHAM MARKOS; ALEXANDER MARKOS; SHARAD KODANTHARA; ABRAHAM MARKOS; ISAAC THOMAS
• Assessee Lawyers: JOSEPH JOSEPH
• Keywords: Assessment Year; Carry forward business loss; Income tax appeal; Revised return
• Section: 139(1); 72; 139(5); 139(3); 80

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No. 237 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 518/COCH/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 25-01-2012 APPELLANT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPRUAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT/ASSESSEE: KERALA STATE CONSTRUCTION CORPORATION LTD., THYCAUD, THIRUVANANTHAPURAM 695014 BY ADVS. SRI.JOSEPH MARKOS (SR.) SRI.V.ABRAHAM MARKOS SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS OTHER PRESENT: SMT ALEENA MARIA JOSE, AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 237/12 -2- K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.237 of 2012 ------------------------------------------- Dated this the 7th day of February, 2019 J U D G M E N T Vinod Chandran, J. The facts in the appeal indicate that for the assessment year (AY) 2006-07 the assessee filed return claiming, inter alia, set off of carry forward business loss. The issue arising in the subject year is as to carry forward of business loss as available in the AY 2002-03. In the return filed for the subject year, the Assessing Officer (AO) has not considered the business loss carried forward. However in appeal, the assessee took a contention that they are entitled to carry forward of business loss for the years 2001-02 to 2005-06. ITA 237/12 -3- The first appellate authority allowed the claim, except that of AY 2002-03. The Income Tax Appellate Tribunal interfered with that order to find the loss of AY 2002-03 also eligible for carry forward. The Revenue is in appeal from the said order of the Tribunal. 2. On facts, it is to be noticed that the assessee in the AY 2002-03, originally made a return under Section 139(1) of the Income Tax Act, 1961 (\"Act\" for short) showing a positive income of Rs.7,79,502/-. This was filed within the time provided under Section 139(1). Later, within the time provided under Section 139(5), a return of loss was filed, wherein a negative result for the relevant previous year was claimed at Rs.1,53,81,497/-. The assessee seeks carry forward ITA 237/12 -4- of such business loss which remained after setting off against the income returned for that year. 3. The questions of law are re-framed as follows:- \"(1) Whether the Tribunal was correct in having directed allowance of carry forward of business loss for the assessment year 2002-03, since the assessee had not filed a return under Section 139(3) within the time stipulated for filing of such return ? (2) Ought not the Tribunal have found that Section 139(5) does not enable the assessee to revise the return filed under Section 139(1) to one under Section 139(3)?\" 4. The learned Standing Counsel for Revenue would submit that the assessee having filed a return ITA 237/12 -5- under Section 139(1) could not file a revised return under Section 139(5) and seek it to be treated as one filed under Section 139(3). Section 80 of Chapter VI is pointed out to contend that a carry forward of business loss as permitted under Section 72 can be claimed only in a return filed under Section 139(3) and any loss which is not determined in pursuance of a return filed under Section 139(3) will not be permitted for carry forward. 5. Since the respondent-assessee had not appeared initially, we appointed Adv.Aleena Maria Jose as Amicus Curiae. The learned Amicus Curiae submits that Section 139(3) specifically deals with loss under two heads; (i) in respect of profits and gains of business or profession and (ii) capital gains, whereas Section 139(1) speaks of a return by every person having a total income exceeding the ITA 237/12 -6- maximum amount which is not chargeable to income tax. Hence, when a return is filed under sub- Section (1), the assessee admits to have an income exceeding the maximum which is not chargeable to income tax and the same cannot be revised to claim a loss which has to be specifically claimed in a return filed under Section 139(3). The provisions applicable to a return filed under Section 139(1), though equally applicable to the return filed under Section 139(3), when a return is originally filed under Section 139(1), merely by way of a revision under Section 139(5), it cannot be treated as one filed under Section 139(3). If such a view is taken, then, sub-Section (3) would be rendered redundant and the intention of the legislature to restrict carry forward of loss with respect to any previous year under the heads of 'profits and gains ITA 237/12 -7- of business or profession' and 'capital gains' would be defeated. The learned Amicus Curiae also places reliance on (2005) 276 ITR 521 [Commissioner of Income Tax v. Haryana Hotels Ltd.]. 6. Sri.Joseph Markose, learned Senior Counsel appears for the assessee-respondent. The learned Senior Counsel specifically points out that Section 139(3) speaks of a return to be filed within the period provided under Section 139(1). It also deems a return filed under sub-Section (3) to be one under sub-Section (1). In the teeth of the above provisions, when a return is filed under Section 139(1) and a revised return is filed under Section 139(5), then, dehors the fact whether there is a loss claimed which was not claimed in the original return, the same has to be deemed to be one under Section 139(3). It is also pointed out that insofar ITA 237/12 -8- as a Company is concerned, the third proviso to Section 139(1) specifically speaks of a return in respect of its income or loss in every previous year. The learned Senior Counsel for the respondent-assessee placed reliance on the decisions in (1995) 212 ITR 433 [Shri Vallabh Glass Works Ltd. v. Income Tax Officer, Companies Circle VIII and Others], (2010) 322 ITR 233 (Delhi) [Commissioner of Income Tax v. Nalwa Investment Ltd.] and (2004) 88 ITD 317 (Mad) [Sujani Textiles (P) Ltd. v. Assistant Commissioner of Income Tax]. 7. Before we look at the specific interpretation of the Section, we would look at the various decisions placed before us. 8. Shri Vallabh Glass Works Ltd., a decision of the Gujarat High Court, relied on by the learned Senior Counsel is an authority for the proposition ITA 237/12 -9- that when the statute permits filing of a revised return, the same has to be considered by the assessing authority as one filed within the period originally prescribed, especially when the final assessment is not over and the limitation prescribed for the revision has not expired. However, in the present case, the fact remains that originally the return was filed under Section 139(1) and later within the limitation period a revised return was filed under Section 139(5). The question arises as to whether on such revised return being filed, it can be treated as one filed under Section 139(3). The decision does not help in resolving the specific conflict arising herein. 9. Nalwa Investment Ltd. was a case in which a Division Bench of the Delhi High Court considered the effect of Section 80 when a revised return is ITA 237/12 -10- filed under Section 139(3). Therein the assessee filed a revised return showing a loss under Section 139(3). Later within the time provided under sub- Section (3), a return was filed claiming loss at an enhanced amount. The AO determined the loss as originally claimed and the assessee was in appeal, wherein the Tribunal directed the loss to be determined as claimed in the revised return. The AO while giving effect to the order of the Tribunal, found that Section 80 acts as a fetter insofar as permitting carry forward. The said finding was on account of the determination having not been made at the time of consideration of the original return under Section 139(3). The Division Bench found that the determination by the AO of loss while giving effect to the order of the Tribunal has to relate back to the determination made on the return filed ITA 237/12 -11- under Section 139(3) and permitted carry forward of the entire loss as allowed by the Tribunal. What distinguishes this decision from the above case is insofar as the original return being one filed under Section 139(3). 10. Going by the peculiar facts available herein, we have also looked into the decision of an Income Tax Appellate Tribunal, Madras in Sujani Textiles (P) Ltd. Therein, the assessee had filed return of loss under Section 139(3) and then filed a revised return returning enhanced loss from that originally returned. The AO, however, completed the assessment on the basis of the original return without taking cognizance of the higher amount of loss reflected in the revised loss return. The Tribunal found that when originally a return was filed under Section 139(3), the same has to be ITA 237/12 -12- deemed to be a return filed under Section 139(1) and then a revised return is permissible as provided under Section 139(5). When such a revised return is filed within the time provided under Section 139(5), then, it has to be treated as the original return filed under Section 139(3). We are in perfect agreement with the above proposition. But again what distinguishes the case before us is the fact that here the original return was filed under Section 139(1) and not under Section 139(3). 11. Section 139(1), as pointed out by the learned Amicus Curiae, provides for a return of income exceeding the maximum amount which is not chargeable to income tax. As pointed out by the learned Senior Counsel, a Company in respect of whom there is an income or loss in the previous year could file a return under Section 139(1). However, ITA 237/12 -13- when carry forward of business loss is claimed or a loss under capital gains, then necessarily a return has to be filed under Section 139(3) within the time provided under Section 139(1). What we find is that carry forward of loss with respect to the two heads of income; being 'profits and gains on business or profession' and 'capital gains' has been culled out from Section 139(1) and a specific provision made under Section 139(3). The filing of a return under Section 139(3) alone would enable such claim of carry forward. A loss return can definitely be filed under Section 139(1). But the same would be restricted to the set off being claimed in that relevant previous year without any claim for a carry forward of loss which remains after set off. 12. True Section 139(3) makes applicable the provisions of the Act as if it were a return under ITA 237/12 -14- Section 139(1). Hence, if a return is filed under Section 139(3), necessarily, the assessee could avail of the benefit under Section 139(5) for filing a revised return which would be treated as the original return filed under Section 139(3). However, when a return is originally filed under Section 139(1), the enabling provision under Section 139(5) to file a revised return only enables the substitution or revision of the original return filed. On a revised return filed, it can only be a return under Section 139(1) and not one under Section 139(3). This compelling distinction persuades us to set aside the order of the Tribunal. 13. Our interpretation coincides with that of the Punjab and Haryana High Court in Haryana Hotels Ltd., para 16 of which is extracted hereunder: “An irresistible conclusion on the conjoint reading of the aforesaid ITA 237/12 -15- provisions would be that a business loss cannot be carried forward unless it has been determined in pursuance of a return filed under section 139 of the Act. In order to be entitled to carry forward a business loss, the assessee must submit a return under section 139(3) of the Act and have an assessment made for the year in which he has incurred the loss. The Assessing Officer has to notify to the assessee by an order in writing the amount of the business loss as computed by him which the assessee is entitled to have carried forward. Where the business loss determined has not been notified to the assessee by the Assessing Officer, the assessee can have it determined in a subsequent year in which the business loss is to be set off.” 14. The respondent-assessee originally filed a 'nil' return with positive income under Section 139(1). When a revised return under Section 139(5) is filed, it only substitutes the original return filed under Section 139(1). The return hence permits set off of the loss against the income of that relevant previous year. What remains after ITA 237/12 -16- such set off can not be carried forward for reason of the revised return not being deemed to be one under Section 139(3). We hence answer the questions of law against the assessee and in favour of the Revenue. We set aside the order of the Tribunal and hold that the assessee is not entitled to carry forward the business loss for the year 2002-03. The Income Tax Appeal is allowed. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE ITA 237/12 -17- APPENDIX APPELLANT'S EXHIBITS: ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE INCOME TAX ACT DATED 19/12/2008. ANNEXURE-B TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE INCOME TAX ACT DATED 30/12/2004 (AY 02-03). ANNEXURE-C TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10/07/2009. ANNEXURE-D TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 25/01/2012. [True Copy] jg "